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1979 Supreme(P&H) 31
PUNJAB & HARYANA HIGH COURT
Bhopinder Singh Dhillon and S.S.Sidhu JJ.
Narain Motors
Versus
Commissioner Of Income-tax
Income Tax Case No. 22 of 1975,
Decided On : FEBRUARY 13, 1979
The disallowance of excessive payments to related parties under Section 40A(2) of the Income Tax Act, 1961, is a question of fact and not a question of law.
Headnote:
INCOME TAX - Section 40A(2) - Disallowance of excessive payments to related parties - Applicability - Tribunal's finding that payment was excessive based on evidence - No question of law arises.
Fact of the Case:
The assessee, an authorized dealer of Escorts Ltd., paid service charges to its sister concern, M/s. Narain Sales Corporation, for servicing tractors and motorcycles sold by the assessee. The ITO disallowed a portion of the service charges under Section 40A(2) of the Income Tax Act, 1961, on the ground that the payment was excessive having regard to the fair market value of the services rendered. The AAC and the Tribunal upheld the disallowance.
Finding of the Court:
The court held that the Tribunal's finding that the payment was excessive was based on sufficient evidence and that no question of law arose from the Tribunal's decision.
Issues: Whether the Tribunal was justified in disallowing a portion of the service charges paid by the assessee to its sister concern under Section 40A(2) of the Income Tax Act, 1961.
Ratio Decidendi: The court held that the Tribunal's finding that the payment was excessive was based on sufficient evidence and that no question of law arose from the Tribunal's decision.
Final Decision: The court dismissed the assessee's petitions.
1. This order will dispose of Income-tax Cases Nos. 22 of 1975 and 50 of 1976.
2. The assessee is an authorised dealer of Messrs. Escorts Ltd., Faridabad, and deals in the sale of Rajdoot motor cycles, tractors, implements and spare parts. During the proceedings for the assessment year 1969-70, the assessee debited to its profit and loss account a sum of Rs. 42,865 on account of service charges paid to M/s. Narain Sales Corporation. The case of the assessee was that it closed down its workshop with effect from 1st January, 1969, and handed over the service job to M/s. Narain Sales Corporation, a sister concern, under a deed of agreement dated 3rd January, 1969.
3. Similarly, for the assessment year 1970-71, the assessee debited a sum of Rs. 1,22,030, to its profit and loss account on account of service charges paid to M/s. Narain Sales Corporation for servicing the tractors and motor cycles sold by the assessee. The ITO found that the provisions of Section 40A(2) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), were applicable and consequently he disallowed the claim of Rs. 20,498, for the assessment year 1969-70, and a sum of Rs. 61,015 for the assessment year 1970-71. In appeal, the AAC, after examining the evidence produced on the record, agreed with the ITO that the provisions of Section 40A(2) of the Act were applicable and concluded that it could reasonably be inferred that 50% of the gross payment made to M/s. Narain Sales Corporation was for considerations other than business and was in excess of the fair market value of the services rendered by M/s. Narain Sales Corporation. He, therefore, upheld the disallowance of Rs. 20,498 for the assessment year 1969-70 and a sum of Rs. 61,015 for the assessment year 1970-71. In appeal, the finding of the AAC was upheld by the Income-tax Appellate Tribunal, Amritsar Bench (hereinafter referred to as " the Tribunal").
4. The assessee moved the Tribunal for referring the following questions of law for the opinion of this court, vide application under Section 256(1) of the Act, out of which Income-tax Case No. 22 of 1975 arises, which relates to the assessment year 1969-70:
"(1) Whether, in view of the facts and under the circumstances of the case, the Tribunal was legally justified in disallowing Rs. 20,498 out of service charges paid by the assessee to M/s. Narain Sales Corporation ?
(2) Whether there was any material before the Tribunal on the basis of which it was held that the payment of service charges made by the assessee to M/s. Narain Sales Corporation was excessive having regard to the fair market value of the services rendered by the latter to the assessee ?
(3) Whether the finding of the Tribunal holding that provisions of Section 40A(2) are applicable in the case of the assessee is not illegal and unjustified ?"
5. Similarly, vide another application under Section 256(1) of the Act, out of which Income-tax Case No. 50 of 1976 arises, which relates to the assessment year 1970-71, the assessee moved the Tribunal for referring the following questions of law for the opinion of this court :
"(1) Whether, in view of the facts and under the circumstances of the case, the Tribunal was legally justified in disallowing Rs. 61,015 out of service charges paid by the assessee to M/s. Narain Sales Corporation?
(2) Whether there was any material before the Tribunal on the basis of which it has held that the payment of service charges made by the assessee to M/s. Narain Sales Corporation was excessive having regard to the fair market value of the services rendered by the latter to the assessee ?
(3) Whether the finding of the Tribunal holding that provisions of Section 40A(2) are applicable in the case of the assessee is not illegal and unjustified?"
6. The Tribunal having come to the conclusion that no questions of law arise in both the cases, dismissed the applications of the assessee. The assessee has now approached this court in these Income-tax Cases and has p
